Utilizing High Deductible Health Plans to Lower Monthly Premiums: Pros and Cons

When considering health insurance options offered by employers, employees often have a choice between plans with varying levels of deductibles and premiums. Typically, one plan features a lower deductible with higher premiums, while the other offers a higher deductible with lower premiums. This decision is not straightforward and comes with its own set of advantages and disadvantages. Let's explore the use of high deductible health plans (HDHPs) to lower monthly premiums and examine the trade-offs involved.

Understanding HDHPs and Employer Plans

Employers often provide two to three health insurance plans for their employees. For the sake of discussion, let's assume the offering includes two plans: one with a lower deductible and lower premiums, and another with a higher deductible and lower premiums. In our example, the first plan's monthly premium for a single employee is $140, which amounts to $3,640 annually. The second plan's monthly premium is $40, resulting in an annual premium of $1,040.

Both plans have out-of-pocket (OOP) maximums, which are the limits the insured person must pay before the insurance covers all remaining medical costs. In the first plan, the maximum OOP is $2,750, while in the second plan, it is $3,650.

Comparing Plan Costs and Savings

Let's break down the costs and potential savings:

First Plan:

Monthly Premium: $140 Annual Premium: $3,640 Out-of-Pocket Maximum: $2,750 In-Network Doctor Visits: $25 copay, with insurance covering the rest up to $2,750

Second Plan:

Monthly Premium: $40 Annual Premium: $1,040 Out-of-Pocket Maximum: $3,650 In-Network Doctor Visits: $20 copay, with insurance covering the rest up to $3,650

In this scenario, the HDHP with the higher deductible results in a significant annual premium savings of $2,600. This money could be directed towards a Health Savings Account (HSA), where it would grow over time and be available for future medical expenses.

Utilizing an HSA for Savings

Health Savings Accounts (HSAs) are tax-advantaged accounts that allow individuals to set aside money for medical expenses. These accounts often come with triple tax benefits: the money you contribute is tax-deductible, the funds grow tax-free, and the withdrawals are tax-free if used for qualified healthcare expenses. Most employers offer some form of HSA contribution, which can further enhance the benefits of these accounts.

Essentially, by choosing the HDHP with the higher deductible, individuals can save significantly on premiums and use the freed-up funds in an HSA for future medical expenses, rather than paying for expensive premiums that may not be utilized.

Alternative to Traditional Health Insurance in Canada

In nations like Canada, where universal single-payer health care has been in place since 1966, the framework for healthcare works quite differently. In Canada, there are no premiums, deductibles, or copays; patients are not limited to certain networks, and the government foots the bill. This system has been in place for over 5 decades, and according to the author, there are numerous benefits:

Healthcare is constitutional and provided by the government, making it free for citizens. No premiums mean lower tax rates compared to the US. The healthcare system is less complex and offers 25 times faster treatment than in the US. People in Canada live an average of 10 years longer than those in the US.

However, the author also highlights areas where the Canadian system falls short, such as long waiting lists, denial of certain treatments, and rationing by healthcare providers. He suggests that these issues are resolved through a more complex and less efficient system, compared to the simple and uninterrupted service provided by a single-payer system.

It's noted that despite these inherent issues, the Canadian healthcare system outperforms the US healthcare system in terms of overall quality and speed of service.